Doing the math on LIPA plan

LIPA technicians work on one of two transformers being installed at the LIPA Newbridge Road Substation in Levittown in preparation for the connection of the Neptune Regional Transmission System cable, which will bring 660 megawatts of electricity (the equivalent of two power plants) to Long Island. (Aug. 16, 2006) Photo Credit: Jim Peppler

After all of the buildup, Gov. Andrew M. Cuomo's State of the State speech Wednesday said virtually nothing about the Long Island Power Authority, other than that it should be privatized.

But now that the governor has made the pitch formal, there are plenty of issues he will need to address in explaining how he'll pull this one off.

A few questions: Who'd want to buy a utility saddled with $7 billion in debt and that needs to make massive infrastructure improvements to safeguard against future storms?

Who's going to honcho the process and how much substantive input will Long Islanders have in what comes next in meeting the region's energy needs? What's the timeline? And are other alternatives -- such as a government-run utility -- completely off the table?

But the key question is whether the numbers add up. The state says it is possible to go private and keep electric rates reasonable while Wall Street bond rating agencies say the math does not work.

Cuomo's press office did not answer an inquiry before deadline Thursday. So let's go back to the preliminary report of the Moreland Commission, a state panel Cuomo created to investigate how LIPA and other utilities responded to Sandy and other storms, for a look at how moving to privatization could work.

One idea is to sell LIPA's assets, including poles, lines and substations, which are valued at about $3.5 billion. There is skepticism in some quarters as to whether the assets, considering their condition, really would bring in that much. But let's push that aside for now.

Should LIPA realize $3.5 billion from a sale, that money would be used to get rid of half of its $7 billion debt. The remaining debt would go back to market in a new borrowing, which would spread repayment and interest terms over 20 years.

The state's thinking is that monies saved from paying off half the debt and the new borrowing, along with expected "synergies" and savings a private utility could produce, would be enough to make privatization work and freeze rates for three to five years.

What happens after the freeze? The commission says rates would rise to what they would have been had LIPA remained in charge.

After Cuomo's speech, response to the notion of turning to a private company was mixed.

"I want to see the numbers on it," Dean Skelos of Rockville Centre, the State Senate's Republican conference leader, told a Newsday reporter in Albany. "I think it's something that has to be considered. But I want to look at the bottom line: Is it truly going to help taxpayers?"

Long Island Association president Kevin Law, a former LIPA chief executive, told Newsday that he was intrigued by the idea. Nonetheless, "I'm anxious to see what the numbers are," Law said. "And the $7 billion question is, what's the impact on rates."

Cuomo is expected to add LIPA to the list of issues to be handled by Richard Kauffman, his new energy czar.